The 2009 study titled International Trade in Used Vehicles: The Environmental Consequences of NAFTA, by Lucas W. Davis, Haas School of Business, University of California, Berkeley, and Matthew E. Kahn, UCLA Institute of the Environ-
ment, studied the effects of the law since its passage in 1993, including trade patterns. The North American Free Trade Agreement was created to expand trade between the United States, Canada, and Mexico to make them more competitive in the global marketplace. As of January 1, 2008, all tariffs among the three countries were eliminated and trade tripled from $297 billion to $1 trillion between 1993-2007, according to the study.
“Virtually overnight a vigorous trade flow emerged,” the study states, “and we document that between 2005 and 2008 over 2.5 million used vehicles were exported from the United States to Mexico.” Continuing, the study poses the question, “Does this imply that the stock of vehicles in the United States has decreased by the same amount?”
The answer was not good news for the automotive recycling industry.
Based on data provided by R. L. Polk & Company, the study surmised: “The results indicate that less than one in four traded vehicles represent a net exit from the stock in the United States. This suggests that most of the vehicles that were exported to Mexico were either vehicles that would have been retired otherwise, or vehicles that were already retired.”
“This statistic is just one reason we are pushing to stop unregulated access to the U.S. salvage pool,” says Automotive Recyclers Association (ARA) CEO Michael E. Wilson. “This is an example of the unfair plundering of our industry’s product pool. With salvage vehicle stock dwindling and competition for it rising worldwide, not just from Mexico, the price paid for salvage vehicles is being artificially inflated and the quality green recycled parts inventory of professional auto recyclers in the United States is being negatively impacted.”
Exposing the Problem
Automotive recyclers are a competitive bunch. Many are small business owners who enjoy the opportunities and challenges that come with building an automotive recycling business. Yet, the problems in the current business environment are beyond challenging: unscrupulous and unregulated buyers do not pay taxes to the United States government; do not pay local sales and business taxes, do not pay employee payrolls, taxes, or benefits; do not operate in accordance with the Environmental Protection Agency; do not have in mind to purchase salvage vehicles for the purpose of properly dismantling and distributing recycled auto parts; and have plenty of money to spend more on a salvaged vehicle than the average auto recycler can justify paying to get a good return on their investments.
“Remedies to level the playing field are beyond the direct control of our members without help from advocate group allies and from legislators,” says ARA President Doug Reinert.
The bottom line is that salvage vehicles are disappearing from the United States, and the buyers of these vehicles are driving up prices of these vehicles at the auctions, making it difficult for automotive recyclers to continue to operate in the best interests of their businesses and the consumers.
Mandate to Act
At the 2010 July ARA Legislative Summit, attendees from across the country identified salvage acquisition as the most important issue facing members today and directed ARA to focus efforts in a coordinated way to address this issue. Since then, ARA leaders and staff have spent considerable time and effort brainstorming how the Association can make the most positive impact on salvage acquisition in an effort to help ARA members and the industry.
In November 2010, ARA successfully united with fellow advocate groups, who desire to end vehicle fraud, by hosting the first-ever Consumer Summit, a formal stakeholder meeting to coordinate efforts toward that end. Other meetings with both federal and state legislators have also been conducted. In the process, the legislative staff at ARA has researched and familiarized themselves with state licensing statutes and curbstoning laws across the United States.
In these efforts, ARA is now positioned as the expert on salvage acquisition and as such is working with federal and state legislators, state agencies, and organizations representing states to establish an economically fair, consumer-oriented, and environmentally-sound business practice regarding salvage vehicle acquisition and management.
State Legislative Activity
“One of the key functions of ARA’s governmental affairs efforts is to provide members with a national perspective on state issues,” says ARA Director of Government Affairs Elizabeth Vermette. “This is especially important on the salvage issue, as we see similar issues pop up in multiple states.”
ARA tracks legislation on a variety of topics in all 50 states and Washington, D.C., including: all legislation related to salvage pools, buyers at pools, Internet sales, de-titling legislation, automobile recycler and dismantler licensing, and anti-curbstoning legislation.
“We communicate with members and affiliate chapters to make sure they know about the legislation when it is introduced in their states,” says Chairman of the Government Affairs Committee Norman Wright. “We highlight the issues on a weekly basis on our state legislative calls, and we offer support to members. In just one week in February, we notified members in three states of legislation that would negatively impact their ability to acquire vehicles. We’ve sent letters to legislators highlighting ARA’s concern with the legislation and drafted letters for members to send their legislators as well.”
ARA has also joined several state legislative groups such as the National Council of State Legislators. “Our membership in these organizations gives ARA an opportunity to provide legislators and their staffs with information and perspective on issues, such as salvage acquisition, most important to our industry,” says Reinert. “It affords us the opportunity to be proactive.”
National Motor Vehicle Titling Information System (NMVTIS)
Established by federal law in 1992, NMVTIS is a U.S. Department of Justice (DOJ) system that is operated on behalf of DOJ by the American Association of Motor Vehicle Administrators. The public electronic system enables users to report, access, and verify key vehicle titling information and branding history. Users include state titling agencies, law enforcement officials, automobile dealers, consumers, automotive recyclers, salvage yards, salvage auctions, and insurance carriers.
Forty-nine states are currently providing data to the system; twenty-six states currently make title inquiries before issuing new titles; twelve states provide data but are not making inquiries; and eleven states are in development (Alaska, Colorado, Hawaii, Kansas, Maine, Michigan, Mississippi, New Mexico, Oregon, and Rhode Island). Only Illinois and the District of Columbia are not providing data at this time.
As a stakeholder, ARA participates on a 27-member NMVTIS Advisory Board to guide the development of the system that is still in its early stages of implementation. “The Advisory Board is designed to bring all these different organizations together, some whom have competing agendas, to work toward a unified and complete system that serves and protects the consumer,” says Wilson, who is serving a two-year term on behalf of ARA.
The board’s input and recommendations regarding NMVTIS include such things as meeting the statutory goals of the system, ensuring participation of system stakeholders, implementing a system that is self-sustainable with user fees, creating opportunities for alternative revenue-generating streams, and enhancing its technological capabilities.
“ARA is fully supportive of NMVTIS,” he adds. “It is sometimes difficult for the auto recycler to understand the benefits of the system once it is fully functional. We are working to educate recyclers on the tremendous upside it will have as reporting and usage matures.”
Earlier this year, the DOJ issued a policy clarification on NMVTIS reporting requirements for tow truck operators and towing companies.
The NMVTIS implementing regulations state that individuals or entities engaged in the business of acquiring or owning junk or salvage automobiles for resale in their entirety or as spare parts or for rebuilding, restoration, or crushing must report to NMVTIS. This includes scrap-vehicle shredders and scrap-metal processors as well as pull- or pick-a-part yards, salvage pools, salvage auctions, and other types of auctions, businesses, and individuals that handle salvage vehicles (including those vehicles declared a total loss.)
In the clarification, DOJ notes that tow operators and towing companies (and similar businesses) that meet the statutory and regulatory requirements of NMVTIS must provide monthly reports.
“ARA has been seeking to level compliance requirements on these type vehicles,” says Wilson. “Automotive recyclers should not have to abide by one set of rules while other entities and many individuals that are handling an enormous number of vehicles operate unregulated.”
Internet Vehicle Sales
On another front, ARA has conducted several discussions with eBay, specifically eBay Motors, about the sale of motor vehicle parts. ARA is now working with them to address concerns regarding state licensing requirements for those who sell recycled automobile parts. EBay regularly works with many industries to ensure that items being sold online are done so in accordance with applicable federal and state laws.
For example, before listing an item on eBay, sellers must check for specific rules and conditions on how the item should be listed. Sellers also need to make sure that the sale of their item complies with all laws.
ARA has also just created a task force on Internet motor sales chaired by ARA At-Large-Director Bradley Alexander. Taskforce members will check Internet sites like eBay and Craigslist for sales that could be violating state law, compile a list of the potential violators and their ads, and send them to ARA monthly.
Getting Members Engaged
Ultimately, ARA is a member-driven effort. As with the Cash for Clunkers program, sometimes it takes an urgent issue to awaken the industry to action. During the Cash for Clunkers program, ARA membership grew significantly as the association got actively engaged in the process from the start to finish.
Salvage acquisition is the next challenge to be overcome, and ARA is aggressively pushing for reform. There are many ways to help; but being informed is the first step. “Right now, our role is to educate,” Wilson says. “We need informed members – auto recyclers. We need informed legislators; and we need informed consumers. The more educated everyone is, the faster we can fight for the solutions and the more likely auto recyclers will see value in having a unified voice in places like Capitol Hill.”
For consumers, education starts with the new ARA website, www.greenrecycledparts.com (see The Battle for Public Awareness in this issue for more on this initiative). For legislators, hearing from ARA members is a start. Contact your representatives, local and federal, and share the information contained in ARA’s Special Report on Salvage.
For ARA members, getting informed can be as simple as being on a conference call once a week. The Internet motor sales task force meets via conference call once a month. Auto recyclers can contact Bradley Alexander at firstname.lastname@example.org to join the task force. The Legislative Affairs Committee also meets via conference call once a week. To join the call, contact Elizabeth Vermette at email@example.com.
Another way to be involved is to become the eyes and ears on the ground. Report any suspicious salvage activity by calling (888) 385-1005 x15. To report questionable ads on eBay, Craigslist, or other Internet sites, e-mail them to firstname.lastname@example.org.
At the very least, if you are not an ARA member, the time has come to join forces to protect your biggest investment, your business. With the 20 to 1 ratio of benefits to membership dues, the fee to join pays for itself. In return, ARA can count you in when talking with legislators and regulators in Washington, D.C., across the United States, and the world.
The forces in control of the salvage problem are big, strong, and unwilling to change. Yet as Margaret Meade once stated, “Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it’s the only thing that ever has.”
“At the end of the day,” says Reinert, “auto recyclers are not looking for favors. We are looking fairness in the marketplace.”
Elizabeth Vermette is ARA’s Director of Government Affairs.
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